SOLOMON ISLANDS COCONUT VALUE CHAIN ANALYSIS
JANUARY 2014
(Revised February 2014)
David Young and Moses Pelomo
World Bank, Australian Department of Foreign Affairs and Trade,
International Fund for Agricultural Development
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TABLE OF CONTENTS
EXECUTIVE SUMMARY
1. INTRODUCTION
1.1 Background
1.2 Rationale
1.3 Approach and Methodology
2. POLICIES AND STRATEGIES
2.1 Economic and National Development
2.2 Agriculture Sector and Coconut Industry Development
2.3 Infrastructure and Transport
2.4 Institutional and Regulatory Framework
2.5 Development Partners
3. DOMESTIC AND GLOBAL MARKETS
3.1 Global Trends
3.2 Domestic Trends
4. VALUE CHAIN ANALYSIS
4.1 Geographic Distribution
4.2 Product Range
4.3 Value Chain Overview
4.4 Methodology
4.5 Results
5. CHALLENGES
6. CONCLUSIONS AND RECOMMENDATIONS
ANNEXES
Annex I Value Chain Analysis for Copra
Annex II Coconut Industry Stakeholder Profiles
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LIST OF ABBREVIATIONS
ACIAR Australian Centre for International Agricultural Research
AusAID Australian Agency for International Development
CEMA Commodities Export Marketing Authority
CIF Cost, Insurance, Freight
CNO Coconut Oil
CSS Coconut Sector Strategy
DFAT Australian Department of Foreign Affairs and Trade
EU European Union
FACT Facilitating Agricultural Commodity Trade
FOB Free on Board
GDP Gross Domestic Product
IACT Increasing Agricultural Commodity Trade
IFAD International Fund for Agricultural Development
ITC International Trade Centre
IWG Industry Working Group
KOA Key Outcome Areas
MAL Ministry of Agriculture and Livestock
MAWG Market Access Working Group
MCILI Ministry of Commerce, Industry, Labour and Immigration
MDPAC Ministry of Development Planning and Aid Coordination
NCIDP National Coconut Industry Development Plan
NDS Solomon Islands National Development Strategy
PARDI Pacific Agriculture Research and Development Initiative
PHAMA Pacific Horticulture and Agriculture Market Access Program
PIC Pacific Island Country
PNG Papua New Guinea
R&D Research and Development
SBD Solomon Islands Dollar
SEF Supplemental Equity Facility
SIAQS Solomon Islands Agriculture Quarantine Services
SIG Solomon Islands Government
SIPA Solomon Islands Ports Authority
SIRDP Solomon Islands Rural Development Program
VCO Virgin Coconut Oil
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EXECUTIVE SUMMARY
Background: Coconuts are the most widely distributed crop in the Solomon Islands and form a key
part of almost all farming systems in all provinces. Some 40,000 rural households produce coconuts
for their own consumption, to produce fuel and building materials, and to generate cash income.
Copra is the most important coconut product and is a vital source of cash income for rural households,
especially those in the more remote areas.
The Coconut Sector Strategy estimates that total production in the Solomon Islands is about 370
million nuts of which around 70 million worth about SBD 140 million are consumed. Copra exports
account for 150-200 million nuts worth some SBD 110-150 million depending on prices. Coconut oil
(crude and virgin) exports generate a further SBD 40-50 million. Byproducts such as copra meal,
charcoal, coir, coconut wood etc. may contribute a further SBD 20-40 million in the value of coconut
products, giving a total gross value of some SBD 300-400 million (USD 40-50 million).
Despite their importance, there has been little investment in coconut production in recent decades.
Coconuts are overwhelmingly a smallholder crop and former plantation production has declined to
negligible amounts. Smallholder households use their income from coconuts to finance their basic
needs and very little is re-invested in the crop, or in value adding through byproduct utilisation, or
diversification into higher value products.
Global Trends: Global trade in coconut products is dominated by copra and coconut oil. The prices
of copra, coconut oil and other vegetable oils are highly correlated and tend to fluctuate over a wide
range. However coconut oil consistently receives a premium over most other vegetable oils. Over the
last decade internationally traded copra prices have ranged between US$ 500 and US$ 1,500/ton
whilst crude coconut oil prices have fluctuated between US$ 600 and over US $2,000/ton. Solomon
Islands copra prices closely track the international benchmark prices. FOB Honiara prices average
about 64% of CIF Europe prices. The volume of global copra trade has declined from 200,000-
300,000 tonnes in the 1990s to 100,000-150,000 tonnes during the 2000s. During the last decade the
Solomon Islands’ share of global trade has increased to almost 20% and is exceeded only by
Indonesia.
Solomon Island Production: Since 1997 annual copra production has mostly been in the range of
25,000-35,000 tons but fell to almost zero in 2001-2002 due to the combined effect of civil unrest, the
end of CEMA’s monopoly and insolvency of CEMA’s oil milling businesses. Production of copra in
the Solomon Islands is price inelastic. A 10% increase in prices is generally associated with increased
monthly deliveries of around 5%. The combination of fluctuating prices and production leads to
extreme volatility in the value of copra exports. Since 2005 the value of exports has been as low as
SBD 33 million and as high as SBD 232 million, and is currently near the lower end of this range.
These wide fluctuations have major implications for rural communities, which are heavily dependent
on copra sales for cash income generation.
Value Chain Analysis: The coconut value chain is extremely complex due to the many products that
can be derived from the coconut palm. From its roots, trunk, leaves, and the different components of
its fruits (husk, shell and kernel, water and “apple”) to its apical bud (King’s salad) are used for
medicinal purposes, housing, wood energy, furniture, handicrafts, other functional utilities and food.
Many of the value chain actors undertake more than one function spanning more than one sub-sector.
The main sub-sectors in the coconut value chain include:
Coconut growers, mostly smallholder households, some of whom also produce copra for sale,
sell coconuts into the domestic market and consume them for food and drinking.
Market intermediaries including coconut and copra traders, copra millers, producers of virgin
coconut oil (VCO), and copra exporters.
The domestic market sub-sector, which utilises a broad range of coconut products for food,
fuel and construction materials.
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The international market sub-sector, which includes traders and brokers (mostly in Asia and
Northern Europe), copra millers (mostly in the Philippines), buyers of coconut oils and meals,
VCO buyers and buyers of dry and drinking nuts.
The value chain analysis for copra shows that at the low prices prevailing in December 2013 copra is
a low-margin business for all of the value chain participants. Growers are only receiving around SBD
1.60/kg delivered to the village buyer, which is not sufficient to generate much interest in producing
copra. This explains why copra production and exports are currently running at a very low level, and
why some traders have suspended their operations due to lack of supply and slender margins. The
total margin accruing to all value chain participants is currently around SBD 0.19 per coconut
processed, which is far less than revenue from other uses such as sale of nuts in local markets or for
use in VCO extraction. At the upper end of the price range the margin increases to around SBD 0.42
per nut, still less than the domestic market price or prices offered by VCO units (generally around
SBD 0.50 per nut). However most growers, especially in remote areas, do not have alternative market
outlets for their coconuts, and copra remains the only available option.
The analysis also shows that margins at all stages are very sensitive to changes in the FOB price of
copra: an increase from the current FOB price of around US$500/tonne to US$ 700/tonne (a 40%
increase) would more than double margins all along the value chain. This is because the costs
incurred, apart from financing costs for working capital, are all independent of copra prices.
Estimates of the total gross margins generated at each level in the value chain, based on 30,000 tonnes
of copra exports, suggest that the industry generates between SBD 30 million and SBD 70 million of
net value addition, with about a third of this accruing to growers. However the grower’s share is
spread amongst tens of thousands of households whereas there are far fewer traders and only three or
four companies engaged as exporters.
Overall the value chain analysis for copra confirms the importance of the sector as a generator of cash
income in rural and remote areas, and generating revenues for traders and exporters. It explains the
resilience of the sector in the face of adverse circumstances and its ability to survive natural disasters,
social unrest and periods of very low prices. However it also demonstrates that the overall returns per
coconut processed into copra are low, and confirms the validity of the two-pronged approach adopted
in the Coconut Sector Strategy of improving the profitability of the copra value chain in combination
with product and market diversification.
The Sector Strategy Identifies challenges and constraints among the different value chain actors:
growers, traders and processors. There are also sector-wide issues related to the institutional and
regulatory framework; the need for product and market diversification; access to finance;
infrastructure and transport; improved value chain integration; and the long-term decline in coconut
production.
Conclusions and Recommendations: Coconuts and copra are the Solomon Islands’ longest standing
commercial smallholder income generating activity and are also very important in food and nutrition
security. The sector will no doubt survive with or without special development interventions.
However, there is a risk that production and exports will decline unless there are definite steps to
revive the sector. SIG has made a strong commitment to the coconut sector through general and
sector-specific strategies, and the Development Partners increasingly recognise the importance of
coconuts in rural incomes and poverty reduction. Against this background, the design of the follow-up
phase of SIRDP should consider a number of possible measures, which target the coconut sector. The
recommended approach therefore has seven key elements:
1. Improve the profitability of the copra value chain mainly through improvement of copra
quality using a combination of regulatory measures, the strengthening of linkages between the
commercial actors and the regulatory and technical support agencies.
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2. Strengthen the institutional framework of the coconut sector.
3. Continue SIRDP-supported improvements in agricultural services to coconut growers.
4. Improve the availability of financial services to value chain actors.
5. Establish a matching grant and technical support facility to support the development of
commercial partnerships between growers and value chain actors with a focus on product
diversification and value addition.
6. Target key marketing infrastructure constraints including logistics as part of SIRDP’s efforts
to develop local infrastructure.
7. Initiate a long-term coconut replanting program.
The above recommendations will be considered in the design of agriculture sector interventions
within the follow-on phase of SIRDP scheduled to be launched in 2015.
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1. INTRODUCTION
1.1 Background
The Solomon Islands Rural Development Project (SIRDP) is a US$37 million initiative supported by
the World Bank, the Australian Government, the European Union and the International Fund for
Agricultural Development (IFAD). The Solomon Islands Ministry of Development Planning and Aid
Coordination (MDPAC) is implementing the Project. Launched in 2008, the program is now
implemented in the eight provinces of Choiseul, Western, Isabel, Central, Guadalcanal, Malaita,
Makira and Temotu. The development objective of SIRDP is to increase access of rural households to
high priority, small-scale economic and social infrastructure, agriculture and financial services. The
Program comprises four components: local infrastructure and service delivery; improved agriculture
services; rural business development; and program management. SIRDP is scheduled to end in
January 2015 and preparations are being made for the design of a follow-on phase.
It is proposed to focus agriculture sector interventions, in the follow-on phase, on high value products
in domestic and export markets, specifically on cocoa and coconut products in the case of the latter.
This focus is broadly in line with and supported by key Solomon Island Government (SIG) strategies
and policies including: the Solomon Islands National Development Strategy (NDS) 2011-2020 which
stresses the need to create an enabling environment for private sector led growth in general and
promoting commercial export crops including cocoa in particular; the Ministry of Agriculture and
Livestock (MAL) through the Corporate Plan 2011-2014 strives to be premier provider of
information, research, extension, education, regulatory and other services to improve the agriculture
sector; and the Solomon Islands Coconut Sector Strategy (SICSS) sets out a roadmap for development
of the sector over the next decade.
1.2 Rationale
The coconut industry is a significant contributor to smallholder livelihoods and national economy
earnings. Coconuts are the most widely distributed crop in the country and form a key part of almost
all farming systems in all provinces. Coconuts are both a food crop and a cash crop and are used to
produce a large number of end products. Some 40,000 rural households in the Solomon Islands
produce coconuts for their own consumption, to produce fuel and building materials, and to generate
cash income - coconuts are often referred to as “the tree of life”. Copra is the most important coconut
product and is a vital source of cash income for rural households, especially those in the more remote
areas.
Coconuts are also an important source of earnings for the national economy. The Coconut Sector
Strategy (CSS) estimates that total production is about 370 million nuts of which around 70 million
worth about SBD 140 million are consumed. Copra exports account for 150-200 million nuts worth
some SBD 110-150 million depending on prices. Coconut oil (crude and virgin) exports generate a
further SBD 40-50 million. Byproducts such as copra meal, charcoal, coir, coconut wood etc. may
contribute a further SBD 20-40 million in the value of coconut products, giving a total gross value of
some SBD 300-400 million (USD 40-50 million). In total coconut products comprise about 20% of
agriculture and fishery exports.
Despite their importance to the national economy and to rural households, there has been little
investment in coconut production in recent decades. Coconuts are overwhelmingly a smallholder
crop and former plantation production has declined to negligible amounts. Smallholder households
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use their income from coconuts to finance their basic needs including food, clothing and education
and very little is re-invested in the crop, or in value adding through byproduct utilisation, or shifting
to higher value products. The recent establishment of a number of virgin coconut oil (VCO)
production units is an exception to this general observation, but so far accounts for less than 1% of
coconut production.
1.2 Approach and Methodology
The objective of this value chain analysis is to identify the most promising opportunities for
increasing the contribution of coconuts and coconut products to rural livelihoods and to the national
economy. The analysis aims to map coconut value chains, focused on elaborating practical pathways
to improving production and marketing and where feasible developing partnerships between
domestic, international and other stakeholders. The results of the analysis reported here will inform
the design of agriculture sector interventions within the follow-on phase of SIRDP.
The report comprises 5 sections: Section 2 describes Solomon Islands Government’s (SIG) national
and sector policies and strategies, the state of infrastructure and transport, relevant institution and
regulatory frameworks activities of development partners involved in the coconut industry; Section 3
provides and overview of global and domestic trends in prices, production and productivity of
coconut products; Section 4 provides an overview of the copra value chain and a snapshot of costs,
revenues and gross margins accruing to smallholders, traders and exporters at each stage of the value
chain; Section 5 provides an overview of key challenges in development of the Solomon Islands
coconut value chain; and Section 6 concludes the main findings of the value chain analysis and makes
recommendations around improving agriculture services and enhancing value chains.
2. POLICIES AND STRATEGIES
This section describes SIG’s national and sector policies and strategies, the state of infrastructure and
transport, relevant institution and regulatory frameworks activities of development partners involved
in the coconut industry
2.1 Economic and National Development
The Solomon Islands economy is continuing to recover from a prolonged period of sharp contraction
following civil tensions during the late 1990s and early 2000s. The average GDP growth rate for the
period 2003-2013 was 2.9%; expected to be around 2.5% in 2013; and forecast to be over 4% in 2014.
National development policies and strategies aimed at promoting development are elaborated in
several key documents including the National Development Strategy (NDS) 2011-2020. The NDS
comprises 8 objectives of which Objective 5 is especially relevant to developments of the coconut
sector: “Increase economic growth and equitably distribute income and employment benefits” which
includes creating an enabling environment for private sector led growth and promoting commercial
export crops.
2.2 Agriculture Sector and Coconut Industry Development
Agriculture plays an important role in the Solomon Islands: 75% of the population are engaged in
agriculture compared with 20% in services and 5% in industry (fishing, mining and timber); and 52%
of GDP is derived from agriculture compared with 39% from services and 9% from industry. As
shown in Figure 2.1 over the five years 2008-12 copra and coconut oil exports averaged SBD 132
million per annum, less than palm oil but more than cocoa, and only comprising 6% of total
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merchandise exports, which are dominated by logs. However if the extractive industries (logs,
minerals and timber) are excluded, copra and coconut oil is the third most important export
contributing 16% of the total and about 20% of the agriculture and fisheries sector exports.
Figure 2.1: Solomon Islands Merchandise Exports, Average 2008-2012 (SBD millions)
All Merchandise Exports
Logs 1,128
Minerals 290
Fish 254
Palm Oil 232
Copra & Coconut Oil 138
Cocoa 98
Re-exports 72
Sawn Timber 64
Other 38
Excluding Logs, Timber and Minerals
Fish 254
Palm Oil 232
Copra & Coconut Oil 138
Cocoa 98
Re-exports 72
Other 38
Source: National Statistics Office and Customs and Excise Division of Ministry of Finance
Sector development policies and strategies aimed at promoting agriculture development in the
Solomon Islands is elaborated in the Ministry of Agriculture and Livestock (MAL) Corporate Plan
2011-2014. The MAL Corporate Plan has as its vision “to promote, improve and lead agriculture
development in the Solomon Islands to a profitable and environmentally sustainable future by being
the premier provider of information, research, extension, education, regulatory and other services to
improve the agriculture sector.” The MAL Corporate Plan comprises 10 key outcome areas (KOA) of
which the following 6 are especially relevant to developments in the coconut sector: KOA 1 poverty
alleviation, enhanced food security and rural livelihood; KOA 2 sustainable growth and economic
development; KOA 5 investment in agriculture research and development; KOA 7 increase
agriculture investments; KOA 8 enabling environment for growth and development; KOA 9 strategic
strengthening of alliances for national, regional and international cooperation.
Aligned with the NDS and the MAL Corporate Plan is the Coconut Sector Strategy (CSS) 2010-2020.
The purpose of the Strategy is to guide and support the development of the coconut industry by
providing a plan and a management framework that articulates value chain actors, the private sector,
existing resources, development activities and donor support. The Strategy presents a situation
analysis including the following key points:
Copra continues to dominate trade in coconut products mainly due to high freight costs, the
lack of bulking capacity and weak sector coordination;
Although direct consumption of fresh nuts is very important nutritionally, coconuts are of
commercial value primarily as copra;
Copra exports are heavily dependent on a single market – the Philippines;
Since plantations in the Russel Islands stopped crushing copra in the late 1990s there has been
limited downstream process of copra and a number of un-successful attempts to rehabilitate
defunct mills;
Land tenure issues are critical in planning effectively for changed production regimes;
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Coconut is a low maintenance, low technology crop with favourable growing conditions in
the Solomon Islands; and
Lack of other income-generating opportunities has meant that copra production has remained
relatively attractive for smallholders.
The Coconut Sector Strategy details a number of anticipated impacts of sector improvement including
the following:
85% of the population will directly benefit and volatile dependency on copra exports will be
reduced;
Increasing income earnings of rural communities and providing more employment
opportunities for men and women;
Value addition: Empowerment of rural economic centres and promotion of investments;
Import substitution particularly for fuel (US$ 700 million per year), food, animal feed and
soap;
Electrification of rural areas (oil as fuel for generators);
Promotion of other sectors such as livestock (development of animal feed); and
Diversification away from timber and reduction of forest depletion.
The CCS also includes an analysis of strategic options and identifies two main priorities: (i)
increasing the value received from copra by improving copra quality and shipping/commercialisation
practices; and (ii) increasing local markets for coconut products by strengthening the local processing
sector. It is envisaged that both import substitution and export development will play a part and that
there should be investment in a portfolio of coconut products rather than just one or two. The
identified priority products include: crude coconut oil for export sales, cooking oil and biodiesel;
VCO and coconut flour; husk utilisation for coir and pith; shell utilisation for energy, charcoal and
activated carbon; and higher value coconut milk for export. These priorities will be pursued through
the following six strategic objectives:
1. Create a Coconut Strategy implementation and coordination body that is self-sustaining.
2. Consistently improve the quality of market, production and business feasibility Information to
enable stakeholders to effectively plan for sector diversification and development.
3. Increase collection and supply of coconuts by 30%.
4. Develop finance mechanisms to enable Strategy implementation and investment by all
stakeholders by 2015.
5. Develop a coconut processing industry for value added and diversification of coconut
products by 2015.
6. Improve support services to respond to sector needs by 2015.
The National Coconut Industry Development Programme (NCIDP) was prepared by MAL and
approved by MDPAC in May 2013 - it consists of a programme to implement the CSS. The rationale
for the Programme is based on the essential role of coconuts in food and nutrition as well as cash
income generation, especially for the poorer sections of the population. It is noted that copra is the
dominant coconut product and that production is moderately price responsive, so any measures to
improve prices (or reduce costs) will stimulate production. Production of VCO rather than copra is
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seen as a priority to increase value addition in the sector, but is at an early stage of development. The
priorities of NCIDP are: (i) to increase the collection and supply of coconuts by 30%; (ii) in
collaboration with the Ministry of Commerce, Industry, Labour and Immigration to develop a coconut
processing industry for value added and diversification of coconut products by 2015; and (iii) to
create a coconut strategy implementation and coordination body that is self-sustaining.
At impact level the NCIDP addresses NDS Objective 5 regarding economic growth, income
distribution and employment. The expected outcome is a strengthened coconut industry through
rehabilitation and value adding activities. The program is costed at SBD 70 million over four years
(2014-18) and includes five outputs: (i) rehabilitation of seed gardens in the provinces; (ii)
rehabilitation and establishment of coconut-based farming system; (iii) establishment of processing
and value adding activities; (iv) improved surveillance for possible introduction of Bogia disease; and
(v) a fully resourced and operational Coconut Secretariat within MAL
2.3 Infrastructure and Transport
In general public infrastructure (roads, bridges, electricity, telecommunications; wharves) are poorly
developed in the Solomon Islands with much of that which was destroyed during the tensions having
not been repaired or replaced. There are some 1,500 kilometres of roads of which only round 50
kilometres are paved. Roads are sparse reaching less than a quarter of communities with the rest
reliant on sea transport. Many bridges are in need of repair and some are impassable. Less than 20%
of the total population has access to electricity and supply extends only a few kilometres outside of
the capital Honiara. Telecommunications, especially mobile communications, are developing rapidly
but remain expensive. There are two operational exports ports in the Solomon Islands at Honiara on
Guadalcanal and Noro on Western Province, both of which have basic container handling facilities. A
third export port used to operate at Yandina in the Russell Islands (Central Province) but has fallen
into disuse following the closure of the RIPEL plantation. There are regular inter-island shipping
services that transport agricultural and other commodities to and from the main ports and other
destinations within the Solomon Islands.
There are no dedicated coconut industry infrastructure or transport services. At the two main ports
sacks of copra are unloaded by hand and those buying and selling copra – processors, traders and
exporters – rely almost exclusively on the regular inter-island shipping services and, locally, on other
sea and road transport services. A few copra traders operate their own small vessels to collect copra
from the remote outer islands. Outside of the two main ports copra is transported by road or sea to
collection points in the main provincial centres or to pick-up points along the coasts often off beaches,
stored in private facilities, before being transported by regular or in some instances private shipping
services to the ports of Honiara and Noro.
Domestic shipping services also tend to price according to the value of the commodity so that higher
value commodities regardless of size and weight pay a higher transport price. For instance the average
price of an 80 kg bag shipped to Honiara is SBD 60-80 for cocoa compared with between SBD 35-60
for copra depending on its origin.
2.4 Institutional and Regulatory Framework
Copra marketing in the Solomon Islands has evolved from a highly regulated parastatal-managed
system to one where there is minimal institutional and regulatory intervention. From 1953 until 1984
the Solomon Island Copra Board controlled copra marketing. CEMA took over the functions of the
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Board between 1984 and 2002, with monopoly rights to export copra, whilst domestic trading was
open to private traders. At this time the industry consisted of several large plantations as well as
many smallholder growers. Traders were paid an incentive to source copra from remote areas under a
freight equalisation scheme. In the 1980s CEMA operated five copra buying centres at Choiseul Bay
(Choiseul Province), Buala (Isabel), Auki (Malaita), Kaonasughu (Makira) and Lata (Temotu). These
buying centres and the three export ports (Honiara, Gizo and Yandina) were staffed by CEMA with
managers, inspectors and labourers. In the early 1990s some 30 buying points were established,
covering the entire country. These were used for both copra and cocoa and included storage facilities
connected to private shipping services, for copra and coconut oil. CEMA engaged Buying Point
Agents to purchase copra at these buying points as well as selling driers, drier parts and sacks.
CEMA paid the Agents a commission per tonne of copra delivered and chartered three vessels to
collect copra from the buying points on a monthly basis. However, these buying points fell into
disuse following CEMA’s withdrawal from trading activities, and the tensions, and are currently not
functional.
In 1995-96 CEMA took over Levers Plantations Ltd and incorporated its subsidiary Russel Island
Plantation Estates Ltd (RIPEL). CEMA also established six provincial copra crushing mills which
supplied coconut oil to RIPEL for export. By the late 1990s only about a 20% of copra was exported
and the remainder processed into oil. However due to a prolonged slump in coconut oil prices (1999
to 2003) coupled with the adverse effect of the tensions RIPEL and the provincial mills went bankrupt
and remain inoperative.
In 2002 the Government decided to remove CEMA’s monopoly and deregulate the marketing of
copra. CEMA ceased involvement in all commercial activities and retained only a regulatory
function. The buying centres and buying points were sold and are no longer operating. CEMA has the
authority to issue, renew and revoke licences to exporters and in cooperation with MAL and the
relevant Provincial Government to register copra traders. However copra driers are not licensed or
registered as for cocoa. MAL extension officers through the Chief Field Officers in their respective
provinces are responsible for enforcing the design and operational standards of copra processing and
storage facilities. However, these requirements were only enacted in August 2013 and little if any
progress has been made in terms of their practical implementation. CEMA is ultimately responsible
for controlling the quality of coconut products exported from the Solomon Islands. The Chief
Inspector of CEMA has the authority to inspect copra storage premises and inspect copra prior to
export. However the copra grading system previously in use is no longer applied and CEMA simply
approves copra for export or occasionally refuses to approve export if quality is very poor.
Preparation of the Coconut Sector Strategy and establishment of the Coconut Secretariat aimed to
develop a new institutional and regulatory framework the coconut sector following the withdrawal of
CEMA from all commercial activities. This has only been partially successful so far. The Sector
Strategy has not yet been endorsed by the proposed national stakeholder consultation due to lack of
funding, and the Coconut Secretariat has no resources to perform its functions of coordinating and
leading sector development. During the next three years the Secretariat will receive some
administrative, financial and technical support from the Pacific Horticultural and Agricultural Market
Access Program1 (PHAMA). PHAMA also supports a Coconut Industry Working Group, which has
similar functions.
1 Financed by the Australian Aid Program
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MAL is attempting to address some of the key problem areas in the regulatory and institutional
framework through the NCIDP. However the NCIDP remains un-funded and there are competing
uses for MAL’s limited resources, so its capacity to exert strong leadership in coconut industry
development is limited. The follow-on phase of SIRDP will continue to support capacity building of
MAL.
Despite the regulatory and institutional weaknesses and disruptions the coconut industry has shown
considerable resilience compared with other Pacific Island Countries (PICs), particularly those of
Polynesia were copra production has almost disappeared. This has been attributed2 to six main
factors: (i) a fundamental comparative advantage in copra production; (ii) the desperation of many
rural households for a source of cash income; (iii) the ability of coconuts to survive several years of
complete neglect; (iv) several periods of relatively favourable copra prices; (v) the existence of a
network of collection centres previously established by CEMA which could be used by private
traders; and (vi) the availability and willingness of the private sector to become involved in copra
trading.
2.5 Development Partners
Whilst there has been significant support for cocoa industry development the Development Partners
have tended to avoid involvement in the coconut sector. Lack of donor support may be attributable to
the parastatal monopoly situation that existed until 2002 and the involvement of commercial entities
thereafter, and or a commonly held view that the sector is strong enough to look after itself.
There was some support to the sector through a copra drier distribution programme funded under the
Australian-financed Community Peace and Restoration Fund (CPRF). SIRDP provides general
support for MAL extension officers to assist coconut growers and copra traders under the improved
agriculture services component, and the Supplemental Equity Facility (SEF) under the rural business
development component provided equity to match borrower equity and commercial bank loans. It is
estimated that copra traders and processors received around SBD 854,000 representing 36% of the
value and six of the 20 SEF grants that went to the agriculture sector. The SEF ended in 2012
following full disbursement of available funds and SIRDP is scheduled to close in 2015. PHAMA
has been supporting the sector through the Coconut Industry Working Group (IWG) and the Coconut
Secretariat. Both the IWG and the Secretariat have similar composition and it is possible that they
will be merged in the future.
3. DOMESTIC AND INTERNATIONAL MARKETS
This section provides an overview of global and domestic trends in prices, production and
productivity of coconuts and coconut products.
3.1 Global Trends
Coconut oil belongs to the category of “lauric oils” because of their high lauric acid content which has
particular advantages for food and industrial uses. Lauric oils (which also include palm kernel oil)
receive a price premium of 15-20% above other edible oils. The market for lauric oils is highly
competitive, characterised by little product differentiation and limited opportunities for niche
marketing. However VCO is becoming an increasingly important exception to this general rule as
2 Solomon Islands Smallholder Agriculture Study, Volume 2: Markets and Marketing Issues
8
there are niche markets for certified organic and fair trade VCO used in high value toiletries and skin
care products.
The demand for copra is derived from the demand for coconut oil and more generally to other edible
oils. As shown in figure 3.1 the prices of copra, coconut oil and palm oil are highly correlated and
tend to fluctuate over a wide range. However coconut oil consistently receives a premium over palm
oil. Over the last decade internationally traded copra prices have ranged between US$ 500 and US$
1,500/ton whilst crude coconut oil prices have fluctuated between US$ 600 and over US $2,000/ton.
On average the world price of copra is around 66% of the price of coconut oil (range 58-74%)
reflecting the high oil content of copra – average 70% oil, range 65-72% and the value of the residue
(copra meal) as a livestock feed.
Figure 3.1: World Prices 1993-2013 (US$/ton)
0
500
1,000
1,500
2,000
2,500
Copra
Coconut Oil
Palm Oil
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Solomon Islands copra prices closely track the international benchmark prices as shown in Figure 3.2.
FOB Honiara prices average about 64% of the “cost, insurance, freight” (CIF) Europe prices with a
correlation coefficient of 92%. The margin between FOB and CIF prices tends to expand during price
spikes and contract during price slumps.
Figure 3.2: Monthly Copra Prices (US$/ton) FOB Honiara and CIF Europe, 2005-2013
9
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
USD FOB
CIF Europe
2005 2006 2007 2008 2009 2010 2011 2012 2013
3.2 Domestic Trends
Global trade in copra has been in long term downtrend over the last 20 years as seen in Figure 3.3.
During the 1990s global exports varied between 200,000 tons and 300,000. Since 2000 global trade
has mostly been between 100,000 tonnes and 15,000 tonnes. This downtrend reflects in increasing
dominance of palm oil in world edible oil trade. However the Solomon Islands’ share of global copra
exports has been increasing sharply in recent years to almost 20% compared to less than 10% in the
1990s.
Figure 3.3: Global and Solomon Islands Copra Exports (Thousand Tons)
0
50
100
150
200
250
300
350
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
World
Solomon Islands
Linear (World)
Source: FAOSTAT
10
The growing importance of the Solomon Islands in global copra trade is shown in Figure 3.4 where in
2010 the Solomons was second only to Indonesia. The Philippines is by far the largest copra importer
and is the destination of most Solomon Islands copra.
Figure 3.4: Five Leading Copra Exporters
in 2010 (Thousand Tons)
Figure 3.5: Five Leading Copra Importers in
2011 (Thousand Tons)
0
10
20
30
40
50
60
70
80
90
Philippines Malaysia Bangladesh Pakistan Australia
Source: FAOSTAT
There are a number domestic price, production and productivity features that characterize the
Solomon Islands copra market. Figure 3.6 shows that since 1997 annual copra production has mostly
been in the range of 25,000-35,000 tons but fell to almost zero in 2001-2002 due to the combined
effect of civil unrest, the end of CEMA’s monopoly and insolvency of CEMA’s oil milling
businesses.
Figure 3.6: Solomon Islands Copra Production (tons), 1997-2012
Figure 3.7 shows that production of copra in the Solomon Islands is price inelastic. Although the
price/quantity relationship is not strong, a 10% increase in prices is generally associated with
increased monthly deliveries of around 5%.
Figure 3.7: Price/Volume Relationship, Monthly Prices and Deliveries 2005-2013
11
Ton
ne
s/m
on
th
SBD/kg FOB
R² = 0.316
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1 2 3 4 5 6 7 8
The combination of fluctuating prices and production leads to extreme volatility in the value of copra
exports. As shown in Figure 3.8, since 2005 the value of exports has been as low as SBD 33 million
and as high as SBD 232 million. This has major implications for rural communities, which are
heavily dependent on copra sales for cash income generation.
Figure 3.8: Value of Copra Exports (SBD million)
2005 48
2006 33
2007 47
2008 156
2009 57
2010 92
2011 232
2012 119
Y TD 2013 33
4. VALUE CHAIN ANALYSIS
This section provides an overview of the value chain for coconut products and a snapshot of costs,
revenues and gross margins accruing to smallholders, processors, traders and exporters at each stage
of the copra value chain. This analysis is intended to inform the design of agriculture interventions
within the follow-on phase of SIRDP. The tentative focus of SIRDP will be on: (i) improvements to
agriculture services including coconut (and cocoa) sector coordination, regulation and monitoring,
research and development and knowledge management, and partnership support services; and (ii)
value chain enhancements including SEF, agriculture value chain grants, technical services, and
community-driven agricultural infrastructure. Discussions around design of the SIRDP agriculture
12
interventions commenced in December 2013 (see Annex 3) - full design of the SIRDP will commence
in early 2014 and the Program is scheduled to start in early 2015.
4.1 Geographic Distribution
As shown in Table 4.1 below, over 60% of the copra comes from three provinces: Guadalcanal,
Western and Central.
Table 4.1: Annual Average Copra Production 2004-12
Province Tons % of Total
Guadalcanal 7,546 27.2
Western 5,304 19.1
Central 4,657 16.8
Malaita 4,188 15.1
Makira 2,296 8.3
Choiseul 1,885 6.8
Isabel 1,283 4.6
Temotu 542 2.0
Total 27,701 100.0
Source: Commodities Export Marketing Authority
4.2 Product Range
The coconut value chain is extremely complex due to the many products that can be derived from the
coconut palm. From its roots, trunk, leaves, and the different components of its fruits (husk, shell and
kernel, water and “apple”) to its apical bud (King’s salad) are used for medicinal purposes, housing,
wood energy, furniture, handicrafts, other functional utilities and food. Table 4.2 lists the income-
generating products in the domestic market and with special focus on exportable coconut products
currently being traded.
Table 4.2: Domestic and Internationally Traded Coconut Products in the Solomon Islands
Item Domestic Market International Markets
Roots and
trunk
(stem)
House posts or stockades from senile palm
trees
Coco-wood – potential for high class
furniture and veneer or interior decoration
and artefacts
Leaves and
fronds Leaves- handicrafts (baskets, hats, mats,
fans etc) for sale to locals and visiting
tourists
Leaf ribs- sold as brooms
Leaves- handicrafts exported to importers
in the Pacific Region
Fruit –
Whole nut Immature drinking nuts market and street
stalls
Mature dry- urban and village markets
Mature dry- sold to VCO DME operators
Mature dry- exchanged with trade-store
consumer goods
Drinking nuts to NZ and Australia
supermarkets
De-husked dry nuts to NZ and Australia
13
Kernel Dried for copra and sold to copra buyers for
export
Dried copra sold to local copra millers for
coconut oil and copra cake for export or
local livestock feed
VCO-DME operators used grated and dried
kernel from mature nuts to produce VCO to
export and meal as livestock feed.
VCO sold locally as health food and
cosmetic lotions and soaps
CNO used locally as biofuel
CNO used to manufacture soaps and
detergents
Kitchen produced coconut oil mixed with
imported perfume or diffused with local
natural scents and sold locally as hair or
massage lotions
Copra imported by overseas copra millers
for coconut oil and copra cake
Local millers export Coconut Oil (CNO)
and copra cake (CNC)
VCO exported as organic product
Packaged VCO exported as health food
and cosmetic lotions
Husks/Coir Rotting husks sold as potting medium for
nurseries of flower, forestry and oil palm
Fibre used to make ropes for traditional
Polynesian and Micronesian houses
Shell Charcoal fuel-wood for local use in
handicrafts
4.3 Value Chain Overview
An overview of the Solomon Islands coconut value chain, depicting functions, export market channels
and support services to the main stakeholders, is presented in Figure 4.1.
Figure 4.1: Solomon Island Coconut Value Chain
14
The various sub-sectors of the value chain are shown in different parts of Figure 4.1.
Coconut Growers
The growers who produce nuts process coconuts into copra in the lower part of Figure 4.1. Coconut
and copra production uses few purchased inputs other than hand tools and sacks, so input suppliers
are not shown as part of the system. The majority of growers are household units with 5-6 family
members growing coconuts on customary land. There are also some communal or cooperative
plantations, church-owned plantations and rural training centre farms. Large commercial plantations
such as those owned by RIPEL are mostly inactive. Some smallholder households do not grow
commercial quantities of coconuts but have 10-20 palms for their own food consumption and to feed
their pigs. Others sell immature nuts for drinking, dry nuts to copra processors or trade stores, or may
dry their own nuts into copra to sell to rural copra traders, copra mills or copra exporters. Increasing
amounts of nuts are being sold to VCO operators but this still represents less than 1% of coconut
production.
International Utilisation
Coconut Growing Sub-Sector
Domestic Market
Sub-Sector
Domestic Market
Intermediaries
Grower-Processors (may a lso buy wet
copra or nuts)
Coconut Growers
Dry and drinking
nut buyers
Overseas copra
mi l lers
International
copra, CNO & CNC buyers/brokers
Large local copra
mil lers
Local VCO buyer-exporter
Copra exporters
Processors of
purchased dry nutsRural copra buyers
Small local copra mil lers
VCO-DMEoperators
Domestic
market/use of
byproducts:
Soap
BiofuelBody lotion
Massage oilsVCO health food
Cooking oil
LightingLivestock feed
Dry nuts
Drinking nuts
Overseas dry and
drinking nut buyers
Overseas CNObuyers
International Certi fied VCO
buyers
Overseas copra meal buyers
15
Market Intermediaries
The middle parts of Figure 4.1 are the market intermediaries between the growers and the domestic
and export markets. The most important are the rural copra traders who purchase copra from growers
and forward it to the exporters, who are all based in Honiara. Transport of copra from the grower to
the rural trader is generally by boat, but some is by road on some islands. The rural traders
accumulate shipments for forwarding to the exporters in Noro and Honiara. There are three main
copra exporters (SICEPL, Agribiz Ltd and SINSA/ALCOM) plus a few smaller operators who export
irregularly. There are also dry and drinking nut buyers who supply the domestic and export markets
and trade store owners who buy nuts and produce copra. Some of these also sell nuts to VCO
producers who in turn sell VCO to exporters. Whilst the majority of the copra is exported, small
amounts are processed into coconut oil and meal in small local mills or larger mills in Honiara. Most
oil and meal produced in the local mills is used locally for soap making, fuel, livestock feed and
cooking. These are general communal or family owned operations producing around 200 litres of oil
per day. Oil produced in the larger mills in Honiara is exported or used for soap making and fuel. Oil
mills are licensed by CEMA. There are two main Honiara-based copra millers, Solfish and Solomon
Tropical Products, plus two smaller operators.
VCO is a small but growing part of this sector. There are around 40 communal or family owned VCO
units using the “direct micro expeller” (DME) technology. They are almost all linked to a nucleus
operator (Kokonut Pacific) which provides the equipment and technical support and purchases the oil,
most of which is certified organic. Most of the VCO is exported for use in cosmetics and skin-care
products, massage oils etc. or as a cooking oil. The VCO units buy nuts from villagers, sort the nuts
to identify those suitable for VCO and process the remainder into copra. Each VCO unit employs a
team of 5-6 operators. Revenues per nut are much higher from VCO than copra and crude coconut oil
manufacture.
Domestic Utilisation
The right hand part of Figure 4.1 shows the domestic utilisation of coconut products which includes
mature nuts for cooking, green nuts for drinking, soap-making, biofuels, body lotions and massage
oils, cooking, lighting, livestock feeds, and many other products.
International Utilisation
The upper part of Figure 4.1 shows the international parts of the value chain which includes
international traders and brokers (mostly in Asia and Northern Europe), copra millers (mostly in the
Philippines), buyers of coconut oils and meals, VCO buyers (mostly in the skin-care/cosmetics
business) and buyers of dry and drinking nuts.
It is common, throughout the coconut value chain, for actors to undertake multiple functions. Many
growers dry their own copra, some are also village traders and some produce value added products
such as VCO. The trade stores which buy copra also sell inputs such as bags, copra drying equipment
and hand tools. Exporters and oil millers have their own networks of buyers and agents in the
provinces, and may also provide land and sea transport services to move coconuts and copra.
Number of Value Chain Actors
The complexity of the coconut product value chain is also reflected in the number of actors at
different levels, estimated as follows:
16
Coconut growers 40,000 rural households
Rural copra traders Around 200 SME scale businesses
Small copra millers 11 SMEs
Large copra millers/exporters of oil and/or copra meal 4 medium sized businesses
Copra exporters 5 medium/large businesses
VCO operators 1 exporter and 40 DME units
Coconut product manufacturers (soap etc) 3 medium sized businesses
Coconut exporters (mature and drinking nuts) 1 medium sized businesses
Many of the above enterprises operate as informal (not registered legal business entity) family
enterprises. This includes virtually all of the growers and most of the rural traders. The traders fall
into two categories:
agents that are strongly linked to the higher level actors (exporters, millers) and very
dependent on the latter for commission and support, especially working capital; and
independent traders who sell competitively and opportunistically. Often they have their own
working capital although limited. Most also operate other rural businesses (trade stores, fuel
depots etc.).
4.4 Methodology
The value chain analysis estimates of gross margins are based on costs and revenues accruing to
smallholders, processors, traders and exporters of copra, based on the Solomon Islands coconut value
chain depicted in Figure 4.1; and the gross margins are presented under three scenarios including a
low price, medium price and high price scenario. Current (December 2013) prices are at the lower
end of this range.
The gross margin estimates are shown in Annex I and include the following costs and revenues from
the harvesting, processing, trading and exporting of copra:
Smallholder grower sale of copra to village copra buyers. Costs include labour for collecting nuts,
cutting and drying copra and transporting it, usually by canoe, to the first point of sale. Unpaid family
labour is valued at SBD 30 per day. The only cash costs are for purchase of second-hand jute sacks.
About 5,000 to 6,000 nuts are required to produce one tonne of copra, and average yields are 200 –
300 kg of copra per hectare.
Village copra buyers purchase copra from growers and sell it to inter-island traders. The costs
incurred include transporting copra from the canoe to a storages shed, and later from the shed to a
ship, plus the costs of holding stock for about a month while accumulating a shipping consignment.
Inter-island copra traders buy copra from the village traders and transport it to Honiara, or in some
cases Noro, for sale to exporters and/or millers. The main costs incurred are shipping and handling
charges. In some cases the village buyers and also inter-island traders, and some exporters also
engage in inter-island trade.
Copra exporters purchase copra from the inter-island traders under contractual arrangements, or at
informal auctions on the wharf at Honiara. They transport the copra by truck to their shed where it is
sorted to remove defective material and transferred from sacks to bulk bins, and then back to the port
for shipping, mostly to the Philippines or Europe.
17
At all stages in the value chain, up to the point of shipping copra is transported in jute sacks
containing 70-100 kg of copra. According to CEMA and international standards, copra is supposed to
be no more than 6.5% moisture at first point of sale, but in reality much is delivered at higher
moisture content. As a result there is about 10% shrinkage between initial delivery and export due to
moisture loss, spillage, pilferage and mould damage.
4.5 Results
The revenues, costs and gross margins, under the today’s (low) price, medium price and high price
scenario, are summarised in Table 4.2 and Figure 4.2 below:
18
Table 4.2: Prices, Revenues, Costs and Margins
Low b/ Medium High
FOB price (US$/t) 500 600 700
FOB price (SBD/t) 3,700 4,400 5,100
Sale Prices (SBD/kg)
Grower 1.60 1.80 2.00
Village Trader 2.00 2.40 2.75
Inter-Island Trader 2.75 3.25 3.80
Exporter 3.70 4.40 5.10
Revenues, Costs and Margins per tonne copra produced
Grower
Revenue 1,600 1,800 2,000
Costs 1,260 1,260 1,260
Margin 340 540 740
Village Trader
Revenue 1,900 2,280 2,613
Costs 1,658 1,963 2,068
Margin 242 317 544
Inter-Island Trader
Revenue 2,613 3,088 3,610
Costs 2,373 2,753 3,085
Margin 240 335 525
Exporter
Revenue 3,300 3,960 4,590
Costs 3,089 3,564 4,087
Margin 241 396 503
Total Margin 1,063 1,588 2,312
Total Margin/coconut 0.19 0.29 0.42
a/ Per ton of copra produced by grower
b/ Current (December 2013) prices
Price Scenario
19
Figure 4.2: Costs, Revenues and Gross Margins (SBD/ton of Copra)
A. Low (December 2013) Price Scenario
US$ 500/t FOB
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Grower Village Trader Inter-Island Trader Exporter
Revenue Costs Margin
B. Medium Price Scenario
US$600/t FOB
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Grower Village Trader Inter-Island Trader Exporter
Revenue Costs Margin
C. High Price Scenario
US$700/t FOB
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Grower Village Trader Inter-Island Trader Exporter
Revenue Costs Margin
The value chain analysis for copra shows that at the low prices prevailing in December 2013 copra is
a low-margin business for all of the value chain participants. Growers are only receiving around SBD
1.60/kg delivered to the village buyer, which is not sufficient to generate much interest in producing
copra. This explains why copra production and exports are currently running at a very low level, and
why some traders have suspended their operations due to lack of supply and slender margins. The
total margin accruing to all value chain participants is currently around SBD 0.19 per coconut
processed, which is far less than revenue from other uses such as sale of nuts in local markets or for
use in VCO extraction. At the upper end of the price range the margin increases to around SBD 0.42
per nut, still less than the domestic market price or prices offered by VCO units (generally around
SBD 0.50 per nut). However most growers, especially in remote areas, do not have alternative market
outlets for their coconuts and copra remains the only available option.
The analysis also shows that margins at all stages are very sensitive to changes in the FOB price of
copra: an increase from the current FOB price of around US$500/tonne to US$ 700/tonne (a 40%
increase) would more than double margins all along the value chain. This is because the costs
incurred, apart from financing costs for working capital, are all independent of copra prices. The
sensitivity to FOB price levels also explains the supply response pattern shown in Figure 3.7.
Returns to labour are an important consideration. Whilst the returns are not as attractive as for cocoa
production, copra production generates returns of SBD 40-50 per day depending on prices which
compares reasonably well with the usual estimate of SBD 30 per day for the shadow price of rural
labour.
20
Table 4.3 presents estimates of the total gross margins generated at each level in the value chain,
based on 30,000 tonnes of copra exports. This suggests that the industry generates between SBD 30
million and SBD 70 million of net value addition, with about a third of this accruing to growers.
However the grower’s share is spread amongst tens of thousands of households whereas there are far
fewer traders and only three or four companies engaged as exporters.
Table 4.3: Total Gross Margins in SBD million/Stakeholders a/
Low Medium High
Growers 10.2 16.2 22.2
Village Traders 7.3 9.5 16.3
Inter-Island Traders 7.2 10.1 15.8
Exporters 7.2 11.9 15.1
Total 31.9 47.6 69.4
Based on exports of 30,000 tons of copra
Overall the value chain analysis for copra confirms the importance of the sector as a generator of cash
income in rural and remote areas, and generating revenues for traders and exporters. It explains the
resilience of the sector in the face of adverse circumstances and its ability to survive natural disasters,
social unrest and periods of very low prices. However it also demonstrates that the overall returns per
coconut processed into copra are low, and confirms the validity of the two-pronged approach adopted
in the CSS of improving the profitability of the copra value chain in combination with product and
market diversification.
5. CHALLENGES
This section provides an overview of key challenges in development of the Solomon Islands coconut
sector. The coconut sector strategy identifies challenges and constraints among the different value
chain actors: growers, traders and processors. There are also sector-wide issues related to the
institutional and regulatory framework; the need for product and market diversification; access to
finance; infrastructure and transport; improved value chain integration; and the long-term decline in
coconut production.
Grower Level Constraints The focus of growers is limited to copra production and they have very
little understanding of alternative coconut products. There is a low level of awareness about
improving copra quality and product diversification. Farmers also complain about lack of access to
inputs such as drying nets, fuel drums and other equipment in remote areas, irregular shipping
schedule, lack of cash advances from copra buyers, lack of information on prices and poor
coordination of collection times. Low and variable copra prices, and lack of price incentives for
quality, are also a major concern of growers and there is a good deal of distrust between growers and
traders. The lack of price bonuses/discounts for high/low quality copra and the limited capacity of
CEMA to monitor quality except at the point of export are major concerns which need to be addressed
under any initiative to revitalize the sector.
Trader Constraints The CSS identifies several main constraints facing the copra traders: transport
infrastructure (roads, bridges, wharfs etc), irregular and expensive shipping services; and access to
finance for investment and working capital. Traders complain about lack of affordable credit to
source advance funds for purchasing copra or accumulating stocks.
21
Processor Constraints The main problems raised by the copra millers concern the quality of copra and
the difficulty in competing with the copra exporters for supplies to process. The quality issue seems
to be of less concern to the exporters. However the millers complain about the lack of grading and
regulation of quality standards by CEMA which is aggravated by the lower quality standard accepted
by exporters and overseas millers. The high cost of electricity is also a major concern to the copra
millers and further impairs their ability to compete with the exporters for procurement of copra.
Institutional and Regulatory Framework At all levels in the coconut value chain the institutional and
regulatory framework governing the industry are weak – the Coconut Secretariat is not fully
functional, and regulations governing quality control in the coconut value chain have been gazetted
but are not being implemented. CEMA and MAL both suffer from serious capacity limitations in
their ability to support development of the sector. PHAMA has supported the establishment of a
Coconut Industry Working Group and is also supporting the Coconut Secretariat. However the nature
of this support is confined to market access issues (in line with PHAMA’s mandate) and in any case
will only last for the lifetime of PHAMA. In terms of the regulatory framework SIRDP has supported
MAL wide capacity building although the practicalities of extension officers enforcing coconut and
cocoa industry regulations specifically have not been elaborated in corporate plans.
Shift to Higher Value Coconut Products Copra is a product with many positive characteristics and is
highly suited to the Solomon Islands as a scattered archipelago, as shown by its long history and great
resilience, including its ability to tolerate global warming and increasing frequency of climatic
extremes. Copra will continue to be a vital foundation of the coconut sector under almost any future
scenario, but its capacity to contribute to rural poverty reduction is limited. In many ways copra can
be seen as a “poverty trap” rather than means of escaping poverty. Fortunately there are a number of
alternative coconut products capable of generating additional value from the nation’s supply of
coconuts, although most of them are not as well suited as copra to remote areas with poor transport
and communications infrastructure.
VCO is perhaps the best example of the several opportunities to diversify into higher value coconut
products. The copra value chain analysis indicates that the coconut growers generate a margin of
SBD 0.07-0.15 per nut processed into copra (assuming 5,000 nuts/ton of copra). As shown in the
stakeholder profiles in Annex 2, coconut growers currently sell husked nuts to VCO processor for
around SBD 0.50 per nut. In addition the VCO processor generates further value addition of around
SBD 0.65 per nut. If a VCO processor uses his own nuts the total margin would be over SBD 1.00
per nut. Of course this requires and investment of around SBD 130,000 in a DME expeller unit,
which many cannot afford, but the much higher margins earned are sufficient to pay this off in less
than two years, and at the same time give the growers who supply the unit a much better return than
they could get from copra.
Access to finance is limited – there are no dedicated facilities to assist lending to the coconut industry
especially to address the mainly operating cost constraints to exporters (i.e. for cash flow) and the
mainly capital cost constraints to traders (e.g. for re/construction and maintenance of storage
facilities) and processors (e.g. for re/construction and maintenance of copra mills or establishment of
DME units for VCO). This has been addressed in the past albeit more incidentally than intentionally
by SIRDP providing financial support through the SEF under the rural business development
component which provided equity to match borrower equity and commercial bank loans; and
22
exporters are providing various amounts of financial support to traders and processors and in some
instances even to smallholders.
Infrastructure and transport is inadequate and expensive. Copra traders and exporters mostly have
their own copra sheds, although some are storing copra in shipping containers that adversely affects
quality. On arrival at Honiara port copra has to be moved to the exporters’ sheds in the industrial
area, and then back to the port at the time of shipping.
Value Chain Integration: There are few, if any, formal relationships between the various value chain
actors, and public-private partnerships (PPPs) have not been developed. Concerns about copra quality
can potentially be addressed by building stronger partnerships between exporters/millers and traders
and between traders and growers. MAL and some exporters are providing independent ad hoc
services to traders, processors and smallholders. SIG through the NDS provides general support to
private sector led growth and specifically through the MAL Corporate Plan, which stresses the
importance of engaging the private sector to deliver services to smallholders as well as traders and
processors. Taking an example from the cocoa industry, the role of the private sector has been raised
in the past especially by the Cocoa Livelihoods Improvement Programme (CLIP), which
recommended that future interventions should include for instance facilitating exporters to provide
more embedded services to traders and growers.
Coconut Supply: Currently there are more coconuts produced than are used, and an estimated 100-150
million nuts are fed to pigs or not used at all. This is sufficient to produce some 20-30,000 tonnes of
copra. Whilst there has not been an age census of coconuts since the mid-1980s it is known that there
has not been very much re-planting since then, and since the tall varieties grown in the Solomon
Islands reach peak production between about 15 and 30 years of age, it is generally agreed that
production is declining, and at the same time, domestic consumption is increasing in line with
growing population and incomes3. Depletion of fertility (principally potassium) and soil salinization
due to sea level rise may also be contributing to declining productivity. Assuming a 2.0% per annum
decline in production and 2.5% per annum population growth rate, the apparent surplus of coconuts
could disappear within 10-15 years. Given the long gestation period of this crop this emphasises the
importance of initiating a major coconut-replanting programme in the coming years. Within the
coconut industry there is a preference for the use of local tall (as opposed to hybrid coconuts) as they
tend to have higher oil content and are better suited to integrated multi-cropping systems instead of
mono-cropping. This will ensure higher financial and social returns for the same piece of land farmed.
6. CONCLUSIONS AND RECOMMENDATIONS
Coconuts and copra are the Solomon Islands’ longest standing commercial smallholder income
generating activity and are also very important in food and nutrition security. The sector will no
doubt survive with or without special development interventions. However, there is a risk that
production and exports will decline unless there are definite steps to revive the sector. The sector also
has the potential to make a significant contribution to the enhancement of rural livelihoods and rural
poverty alleviation. SIG has made a strong commitment to the coconut sector through strategies and
policies elaborated in the NDS and the MAL Corporate Plan as well as the CSS and the NCIDP. In
addition the Development Partners increasingly recognise the importance of coconuts in improving
rural incomes and reducing poverty levels.
3 This is a problem encountered in all the major coconut producing and consuming countries of the Asia-Pacific
region.
23
Against this background, the design of the follow-up phase of SIRDP should consider a number of
possible measures, which target the coconut sector, in parallel with interventions to stimulate
development of the cocoa sector. The recommended approach therefore has seven key elements:
Improve the profitability of the copra value chain mainly through improvement of copra quality
using a combination of regulatory measures, the strengthening of linkages between the commercial
actors and the regulatory (CEMA) and technical support (MAL) agencies as well as measures to
improve financial literacy and business management skills of value chain actors. Measures to
improve quality must be accompanied by pricing protocols which reward/penalize growers and
traders for good/bad quality and that these pricing signals are transmitted along the value chain.
Any improvement in profitability will also stimulate production and increase export volumes.
Strengthen the institutional framework of the coconut sector, in particular to establish the Coconut
Secretariat as an effective and sustainable sectoral agency which is able to coordinate efforts of all
stakeholders to, including marshalling the financial and other resources needed to revitalize the
sector.
Continuation of SIRDP-supported improvements in agricultural services to coconut (and cocoa)
growers including supporting MAL and CEMA to implement the regulatory framework governing
processing, trading and exporting of cocoa and coconut products and supporting MAL to
implement an institutional shift towards leveraging industry-led agriculture services.
Improving the availability of financial services to value chain actors, especially the traders,
processors and exporters, through continuation of the SEF and designing SEF guidelines that
specifically target coconut (and cocoa) sector participants.
Establishment of a matching grant and technical support facility to support the development of
stronger commercial partnerships between coconut growers and downstream value chain actors,
modelled on the PNG Productive Partnerships in Agriculture Project (PPAP). Such partnerships
would focus on supporting efforts in product diversification with a specific focus on higher value
coconut products – VCO, biodiesel, coconut cream, export of fresh nuts etc.
Targeting key marketing infrastructure constraints including logistics as part of SIRDP’s efforts to
develop local infrastructure that will facilitate efficiency.
Initiating a long-term coconut replanting programme, beginning with the selection of mother
palms, and establishment or rehabilitation of coconut seed gardens. The best way(s) to stimulate
re-planting, and the role of MAL and commercial partners in developing seed gardens and
distributing seedlings will be assessed during the design of the SIRDP follow-on phase.
The above recommendations will be considered in the design of agriculture sector interventions
within the follow-on SIRDP scheduled to be launched in 2015. Some activities could commence in
2014 especially as these are within the scope of the SIG policies and strategies and do not require
significant additional resources other than those already committed. Examples include the regulatory
measures to improve copra quality, strengthening of the intuitional framework (with support from
PHAMA), and continuing support for improvement of MAL services to growers. The other elements
recommended above will be built into the design of agriculture sector interventions within the follow-
on phase of SIRDP and commence in early 2015.
24
1
ANNEX I: VALUE CHAIN ANALYSIS FOR COPRA
December 2013 (low) Price Scenario
Unit: One tonne of Copra produced
SBD/
Notes Unit Unit No Units SBD
Revenue
Sale of copra to village trader a kg 1.60 1,000 1,600
Total 1,600
Labour costs b
Nut collection Person days 30 10 300
Cutting Person days 30 8 240
Drying Person days 30 3 90
Sorting Person days 30 1 30
Ramming Person days 30 1 30
Firewood cutting Person days 30 1 30
Transport of firewood Person days 30 5 150
Person days 30 6 180
Drier maintenance Person days 30 1 30
Transport to village buyer Person days 30 1 30
Total labour costs 37 1,110
Other costs
Jute sacks c Sack 10 15 150
Total other costs 150
Total costs 1,260
Gross margin 340
Gross margin per labour day 39.19
a. Yield 200-300 kg/ha of copra, moisture content approx 6%
b. Surce: DBSI crop budgets 1995
c Second-hand sacks, 15 per ton, SBD 10 per sack
Table 1: Copra Production: Revenue, Costs and Gross Margins
2
Unit: One tonne of Copra produced
SBD/
Notes Unit Unit No Units SBD
Revenue
Sale of copra to inter-island trader a kg 2.00 950 1,900
Total 1,900
Labour costs
Transfer copra from canoe to shed Per bag 1.00 15 15
Loading from shed to ship Per bag 1.00 15 15
Total labour costs 30
Other costs
Working capital b kg 0.0292 950 28
Purchase of copra kg 1.60 1,000 1,600
Total other costs 1,628
Total costs 1,658
Gross margin per tonne 242
a Allowance for 5% shrinkage due to loss of moisture, mould damage etc
b Cost of stock-holding: one month @ 17.5%
Unit: One tonne of Copra produced
SBD/
Notes Unit Unit No Units SBD
Revenue
Sale of copra to Honiara exporter a kg 2.75 950 2,613
Total 2,613
Labour costs
Unloading bags at Honiara wharf Per bag 1.50 15 23
Total labour costs 15 23
Other costs
Shipping cost b bag 30 15 450
Purchase of copra kg 2.00 950 1,900
Total other costs 2,350
Total costs 2,373
Gross margin per tonne 240
a Sale on wharf at Honiara Port
b Cost of shipping to Honiara SBD 20-50 per bag
Table 3: Inter-Island Copra Trader: Revenue, Costs and Gross Margins
Table 2: Village Copra Buyer: Revenue, Costs and Gross Margins
3
Unit: One tonne of Copra produced
SBD/
Notes Unit Unit No Units SBD
Revenue
Sale of copra FOB Honiara a kg 3.70 900 3,330
Total 3,330
Labour costs
Load bags onto truck at wharf Per bag 1.50 15 23
Unload and empty bags at shed Per bag 2.00 15 30
Total labour costs 53
Other costs
Truck hire, wharf to shed b bag 8.89 15 133
Truck hier, shed to wharf tonne 160.00 0.90 144
Port Authority charges c bin 275.00 0.36 99
CEMA inspection d tonne 50.00 0.90 45
Phytosanitary certificate e tonne 3 0.90 3
-
Purchase of copra kg 2.75 950 2,613
Total other costs 3,037
Total costs 3,089
Gross margin per tonne 241
a After further 5% shrinkage due to spillage, pilferage, mould damage and moisture loss
b Truck costs SBD 400 to transport 3 tonnes (45 bags)
c SIPA charges for hire of bulk (2.5 tonne) bins, port charges and loading costs
e Costs SBD 150/consignment: assumes 50 tonnes per consignment
Table 4: Copra Exporter: Revenue, Costs and Gross Margins
1
ANNEX 2: COCONUT INDUSTRY STAKEHOLDERS PROFILES
Overview
The coconut industry in Solomon Islands involves many players at the production, trading (domestic
and international), value-adding players as well as manufacturers of coconut products for domestic
and export markets. The key stakeholders may be categorised into the following groups although in
practice individual players may be involved more than one part of the value chain.
Coconut growers
Rural and urban traders of mature nuts and drinking nuts
Mature nuts and drinking nuts traders and exporters
Traders and exporters of copra
Millers of copra and exporters of coconut oil (CNO) and copra cake
Manufacturers of secondary and tertiary coconut products for domestic and international
markets
Producers and marketers of virgin coconut oil (VCO) and by-products
There are five licensed coconut exporters, four medium-sized copra crushers and ten smaller sized
mills as well as one organic VCO marketer with at least 30 VCO producers using Direct Micro
Expeller (DME) technology. There are many more coconut trading enterprises involved in processing
and drying copra linking with the exporters. Selected players are profiled below to show their
diversity and the different approaches and innovations that they use.
Copra Exporter 1
This company was the first to enter the copra exporting market in 2003 after CEMA relinquished its
monopoly over marketing of copra in 2002. It is a subsidiary of an international commodities broker.
It took over the CEMA export facilities at Honiara and Noro as well and more recently, the buying
centre at Choiseul Bay, Choiseul Province. It operates in a similar way to CEMA – posting staff to
Noro and Choiseul Bay, advancing pre-finance to its agents throughout the country; and operates a
500 ton ship that collects copra from its agents, branches and even purchased from nearby
Bougainville, PNG. The copra is exported to its parent company’s mill at Vanuatu or to the Asian
markets.
From its initial 4,782 tons in 2003, the company has grown - averaging 10,924 tons annually or 39%
share of the market for the last nine years. This had brought an annual average more than SBD 36.5
million cash to rural coconut growers. Using its ship, it was able to provide services to many of the
islands and regions not served by other exporters. However, it also had to revised its mode of
operations the last couple of years when its contracted shipping operation proved fraudulent, agents
defaulting on their advances, more competition from other exporters, and growers reluctant produce
copra because of the lower prices.
Apart from establishing an extensive trading network in the high copra growing regions, the company
is spending time and resources in cementing the loyalty of grower-clients as well as its own agents by
offering competitive prices and ensuring secure markets. The company provides the following
services to its clients and agents: (i) advances of working capital; (ii) drier-part materials such as
drums, nettings and chimneys; (iii) copra sacks; (iv) subsidised freight – charging SBD 30.00 per bag
for copra at point of purchase anywhere in the country; and (v) higher prices for larger consignments.
Copra Exporter 2
2
This company is a family company licensed as a cocoa trader in 2002 and copra exporter in 2004.
The company was the first fully locally-owned company that ventured into copra exporting after
CEMA discontinued its commercial operations. The company established a financing arrangement
with a Singaporean commodities trader to provide advances for copra buying. The company is based
in Honiara but also had a branch at Gizo. Later the Gizo branch was closed and moved to Noro export
port. Management includes the owner who has qualifications and experience in exporting from his
previous employment with the Quarantine Services of MAL and several years with CEMA.
Most of its trade for copra is in Western and Choiseul Provinces but the company is also very active
in Russell Islands (Central Province) and at the Honiara wharf – offering competitive prices to traders
from other provinces. The company usually charters ships on a monthly basis to collect copra from its
agents and bring to Honiara or Noro. These charters are also used to collect sawn timber for the
company’s sawn-timber exporting business.
Its first copra export was 3,661 tons in 2004. Since then it had exported on an average 7,591 tons
(annually for the nine years to 2012) and became the second largest exporter. In 2011, it was the top
copra exporter. During 2004-2012 it brought in over SBD 234 million (27%) of the cash flowing into
the rural economy from copra. In fact as a relatively small family company, it had provided many
services to the rural people, not only copra but also purchase and export of 3,025 tons of cocoa as well
as sawn timber.
Like other copra exporters, the company offers incentives to its agents and key grower clients to
ensure loyalty, including; (i) subsidised freight; (ii) copra sack replacement; (iii) copra drier parts; (iv)
working capital; (v) other personal assistance where ever appropriate; and (vi) providing “breakfast of
tea and biscuits” to early morning sellers to its Honiara office.
Copra Exporter 3
This company is a partnership of an expatriate and two nationals. It started as an agricultural
management company but obtained a copra export licence in 2004. It is managed by the expatriate
partner and based in Honiara. This is basically a one-man operation with the manager and labourers.
It buys copra from all provinces and depends on reliability of payment of competitive prices as way to
hold its suppliers. Advances are restricted to proven loyal agents. It also provides incentives to sellers
by offering subsidised freight, sack replacement and competitive prices for high volume batches. It
sells its copra to at least two commodities brokers.
It exported 6,611 tons in 2004. Since then it had exported 57,510 tons averaging 6,390 tons (annually
to 2012 valuing SBD 19.6 million. For the last nine years to 2012, it had maintained its share of the
market as the third highest copra exporter (23% of volume). Its main strength is being consistent in
providing reliable services including prompt cash payment of copra supplied by growers and traders.
However, as more millers are entering the market, the company is facing more challenges but plans to
continue being innovative and efficient in order to survive.
Copra Miller 1
This company is a foreign investor that began operating in the coconut industry about a decade ago. It
started by using the Tinytech technology from India that was able to mill at least 200 litres of CNO on
a daily basis. In the beginning this technology was used as cold-press to extract higher quality coconut
oil for special markets or to manufacture higher quality products. It also operated a shipping service
around Guadalcanal, Savo Island and Russell Islands to ensure its supply of copra. It also tried to
enter the organic market for its coconut oil. Unfortunately, this venture did not take off as the cost for
certification was expensive. Later it took-over a medium sized mill with a capacity of 200 tons of
CNO per year. It continued to export its oil while investing further into using coconut oil as blended
diesel fuel.
3
The company continues to venture into other coconut related enterprises including soap and cosmetic
products. While the cosmetic products are meeting a lot of competition from cheap imported products
from Asia, the company is targeting special and loyal clients for its cosmetic products. The company
is continuing to export small amounts of CNO and coconut meal. It has received assistance through
the PHAMA program and get certification for its copra meal to access markets in Australia.
More recently, the company is providing technical and marketing support to small rural coconut oil
millers (using the Tinytech technology) that are promoted by the EU RAMP Project. It orders the
machines, assembles them, and provides training for the operators. The partnership also includes
buying the oil and copra cake from these rural millers. The company is also promoting and testing
special generators to be fuelled by filtered coconut oil, suitable for villages to produce electricity.
Like other copra millers in the country, the company has to manage the many challenges that affect
the viability of its business including: (i) price volatility for copra, CNO and fossil fuels; (ii) low
consistency and reliability of high quality copra; (iii) low quality copra produced that targeted the
copra milling markets in Asia; (iv) strong competition from cheaper cosmetic products; (v) high cost
of utilities; and (vi) high international and domestic freight costs.
Copra Miller 2
This company is a subsidiary of a one of the main hardware importing and construction companies.
Its interest in agriculture sector started about a decade ago with the coconut industry. It also has
interest in exporting cocoa. For the coconut industry, it invested in a fleet of three ships and a large-
scale copra mill. It also has plans to grow a 100 hectares of its own coconut and produce VCO as well
as exporting drinking nuts and dry nuts. It had been licensed to export copra by CEMA.
With its three ships, the company operates as a “beach trader” to the far-west (Vella, Shortlands and
even Bougainville), Makira and Russell Islands - buying copra, cocoa and other commodities while
selling consumer goods and hardware including copra driers. The copra mill started production in
2012, operating four days a week mainly because of low throughput. It exported 172 tons of coconut
oil in 2012 and 6 tons in 2013, all going to Taiwan.
The company is still at its early stage of developing the coconut industry and the agriculture sector at
all levels of the value chain. It is robust and has invested much in production, processing,
manufacturing of products for local and export markets. Future plans include bio-energy production
using coconut oil. While it has not yet produced or exported any bio-fuel, it has undertaken research
for bio-diesel using coconut oil and developing other edible coconut products such as desiccated
coconut, coconut cream, yogurt, VCO and cooking oil.
Its core activities are producing oil to manufacture soap and other cosmetic products for the local
market. The other activity is to facilitate the procurement of Tinytech machines for rural small millers
under the EU funded RAMP Program. In association with this programme, it also provides instalment
of the machines, training for the operators and purchase of the oil. This project started in 2013 and
many of the machines have just arrived.
The company does not plan to venture into large-scale industrial coconut oil production because it
does not have the capacity to be competitive with the Asian producers. Its sees the developing of
higher-value products for domestic and even regional markets as the priority.
VCO Marketer 1
There is one company engaged in coordinating the production and marketing of VCO. It has supplied
about 40 DME units to widely scattered individuals and community groups, of which about 30 are
operating satisfactorily. The ten which are not operating or partially operating are mostly affected by
4
other income generating opportunities in the areas (e.g. logging) or ill health, family disputes etc. The
company partly finances the new DME units, provides all the technical support and training for the
operators, and buys the oil for a fixed price of SBD 24 per litre for first grade oil regardless of
location. Lower quality oil is purchased at a discounted price and sold in the local market. All of the
first grade oil, about 100 tons per annum, is marketed internationally as certified organic VCO and is
mainly used for cosmetics and skin-care products such as moisturizers, lotions, massage oils and
soaps. Some is also used as edible oil.
Global demand for VCO is strong and growing. The current world market is around 10,000 tonnes
per annum, with the Pacific Islands supplying less than 3% of this. VCO is a product that is well
suited to the Solomon Islands on the following basis:
It utilises a raw material (mature coconuts), which is in abundant supply and would otherwise
go to waste.
It produces a high value and non-perishable product, which can be easily stored and
transported.
It is well suited to small-scale decentralized production in clusters of small-scale units.
It is well suited to Solomon Islands lifestyle and culture whereby production can be scheduled
around social and family obligations.
Significant price premiums are available for certified fair trade and organic product.
There are no significant phytosanitary trade barriers.
VCO can be used locally as an edible oil as a substitute for imported vegetable oils.
It produces a byproduct (meal) which is a valuable pig and poultry feed
There are a number of technologies available for production of VCO. The preferred technology in the
Solomon Islands is the direct micro-expeller (DME) method which involves the following steps: (i)
collection of mature coconuts from the field; (ii) husking the nuts; (iii) sorting into those suitable for
DME processing and those suitable for copra; (iv) grating to remove the flesh; (v) roasting to reduce
moisture content; and (vi) pressing to extract the oil. Each DME unit costs about SBD 130,000 to
establish and is capable of producing around 40 kg of VCO per day. There are estimated to be around
100-150 million un-used coconuts in the Solomon Islands, which at the rate of 15 nuts per kg of VCO,
represents potential production of over 7,000-10,000 tonnes. This suggests that this business has the
potential to scale-up over time, provided there is a means of financing the establishment of additional
DME units. The investment required for a single small-scale DME unit is around SBD 130,000 (US$
18,000) covering the cost of processing equipment, a generator, shed, installation and working capital.
One individual DME operators has also scaled up to five DME units operated on a contract basis by
paying teams per liter of oil produced with premiums and discounts for quality.
As shown in Table 1 below, the margins earned by a DME operator are attractive, and sufficient to
return the SBD 130,000 investment in less than two years. The returns per coconut processed and per
labour day are much higher than can be earned from copra production. Also the DME units buy
coconuts from growers at prices well above the amount they could earn from producing copra.
5
The business model is a “hub and spoke” system with a central collection, processing and exporting
unit supporting some 40 village-based DME units operated by individuals or family businesses. The
central unit supplies the equipment, trains the operators and collects the oil for final processing
(filtering) and exporting in 200 liter drums. VCO is a relatively low risk investment opportunity.
Production technologies are well developed and quite simple, the supply or raw material is assured,
and the market is large relative to the Solomon Islands capacity to supply, and is expanding. It is
possible however, that VCO prices may converge with crude coconut oil prices over time due to
increasing production of VCO in the large coconut producing countries such as the Philippines,
Indonesia and Sri Lanka.
Coconut Exporter 1
There is currently one business exporting mature fresh coconuts (also known as “dry nuts” and
“brown nuts”) from the Solomon Islands to Australia and New Zealand and several other companies
interested in doing so. The nuts are purchased from growers, transported to Honiara, graded and
packed into sacks and shipped in refrigerated containers. A study by PHAMA4 in February 2013
noted that:
Coconuts are approved for export from all PICs to Australia provided the husk is removed
and the shipment is fumigated.
Demand for dry nuts in Australia is modest but has increased significantly in recent years.
There is almost no competition from domestic suppliers in Australia.
Other countries exporting coconuts to Australia include Thailand, Samoa and Tonga
The Australian market for fresh drinking nuts is small but developing rapidly.
4 PHAMA (2013) Feasibility Study on Developing Exports of Selected Commodities from Solomon Islands to
Australia
Unit: One DME unit for one year
Gross Income Unit SBD/Unit No Units ST
VCO - first grade a/ kg 24.00 6,000 144,000
VCO - second grade a/ kg 18.00 2,000 36,000
Coconut cake (for livestock feed) kg 2.50 8,400 21,000
Total Gross Income per DME Unit 201,000
Variable Costs
Purchase coconuts (16 nuts/kg oil) nuts 128,000 0.50 64,000
Labour (SBD 5.00/kg of oil produced) b/ per kg 5.00 8,000 40,000
Repairs and maintenance c/ Lumpsum 6,500
Fuel for generator (60 L/tonne VCO) L 14.00 480.0 6,720
Total Variable Costs per DME Unit 117,220
Total Gross Margin per DME Unit 83,780
Gross Margin per Coconut Processed 0.65
Gross Margin per Labour Day 124
a/ 200 days/year x 40kg/day = 8 tonnes per annum
b/ Team of five paid SBD 5.00/kg of oil produced
c/ 5% of buildings and equipment cost per annum
Table 1: Gross Margin for Virgin Coconut Oil
6
Retail prices are high – around AUD 2.50 per dry nut and AUD 2.80 for drinking nuts (SBD
16.50 and 18.50 respectively).
Wholesale prices are around AUD 24 – 29 per bag of 20-22 nuts (equivalent to SBD 8 – 9 per
nut).
Supermarkets are keen to increase turnover of coconuts but require full traceability and
HACCP certification.
The PHAMA study noted that Australian imports of coconuts increased from 1,700 tonnes in 2001 to
almost 4,300 tonnes in 2010, a compound annual growth rate of 11%. Between 2007 and 2010 the
volume imported increased by 85%. Most of these imports were fresh mature nuts. On the basis of
wholesale market turnover it was estimated that the total Australian market for coconuts is currently
around 5,000 to 5,500 tonnes and continuing to grow. Prices have also increased significantly – from
around USD 290/tonne in 2001 to USD 516/tonne CIF in 2010. Thailand is the largest supplier with
Samoa and Tonga being the main sources within the PICs.
The PHAMA study concluded that: (i) there is potential for expansion of coconut exports and
diversification into fresh drinking nuts; (ii) the logistics of collecting coconuts on the outer islands
and transporting them to Honiara to assemble export shipments impose significant costs; (iii) however
the marketing margins are adequate to cover these costs; and (iv) coconuts are an established export
with high priority for expansion and diversification.
